Think of professional indemnity insurance as legal protection for freelancers. It's designed to help you if a client ever accuses you of:
- making a mistake in your work
- causing them loss of income
- not completing work to their expectations
It offers a lot of protection (some of which we'll go into more detail about later), but we like to simplify it by thinking of it as insurance for careless mistakes or problem clients.
How does it work?
If a client threatens legal action against you, professional indemnity insurance would pay:
- legal costs to defend yourself (the insurer would appoint a team of legal experts)
- compensation to your client for loss of income
- damages awarded to your client
- mitigation costs to you (the insurer will pay what's owed to you if your client refuses to pay your fees and threatens to bring a claim against you)
The idea is that your business won't be worse off financially because you're passing that financial burden to the insurer. Professional indemnity exists to put you back in the same financial position after a loss as you were in before a loss.
A real example of a claim
Here's a true story of a With Jack customer that suffered a loss and used their professional indemnity insurance.
An agency was hired to design a website with an important launch date. The project didn't go smoothly and the agency struggled to deliver the work they'd promised the client on time. Fast forward to launch, the website lacked important functionality and—in the client's eyes—wasn't fit for purpose.
The client refused to pay the final invoice and threatened to involve solicitors if the agency pursued payment. They also outlined additional expenses incurred, such as hiring new contractors to resolve the issues and loss of income due to missing their launch date.
The unpaid invoice worth £24,000 was settled by the insurer under the ‘Mitigation Costs’ clause of the policy. The insurer's legal experts also provided the agency with an email to send to their client. This was to confirm that no legal action or expenses would be pursued and the project is considered at an end.
How valuable is insurance?
"I just don't think it's that valuable to me. I've never had a problem before." — Most freelancers
If you've never had a problem client or been given a reason to worry, you may struggle to see the value of insuring your business. We hear this a lot.
We don't doubt the quality of your work or your ability to choose the right clients to work with. But instead of thinking about insurance as throwing money into the abyss, consider it as giving you access to a team of legal experts for < £20 a month.
You don't shoulder the cost of legal fees, nor do you have to trawl Google looking for a lawyer who's an expert in your dilemma to consult with. That's all provided for you with manageable, bite-size payments of less than £20 a month. What's not valuable about that?
Be a confident freelancer
Then there's the emotional support. Dealing with an angry client is stressful and scary, but knowing you have the backing of a team of experts gives you peace of mind. You don't have to handle it alone.
Freelancers are getting stiffed
"In our study, 44% of respondents told us they've been stiffed by a client before." —And Co
According to And Co, almost half of freelancers are stung by a bad client. What measurements have you put in place if you're one of them? Here are some things you should consider to be a bulletproof freelancer:
- Working with a contract
- Making regular back-ups of your work
- Being insured
- Managing your cashflow
You can use our business health check-up tool to see how you could better protect your business.
Professional indemnity deep dive
Let's take a closer look at some of the specifics that are covered. Please note that all policies are different, so you should consult your policy wording or speak to your insurer.
Intellectual Property InfringementDesigners will be relieved to hear unintentional copyright infringement is covered, as will developers to know that accusations of intellectual property are covered (we've all seen The Social Network, right?).
Defence CostsIf a client makes a claim against you, your professional indemnity policy will pay the defence costs. Even if you’re in the wrong.
Mitigation CostsIf a client is dissatisfied with your work, they may refuse to pay any or all your fees and threaten to bring a claim against you. The insurer will pay you the amount owed to you by your client if they believe this will avoid a claim for a greater amount.
NegligenceThink of this as the bread and butter of your policy as this covers any careless mistakes you make.
Breach Of ContractThere will likely be consequences as a result of unintentionally breaching your contract or an agreement with a client. Your client could experience loss of income and try to claim damages from you.
Hopefully we've explained what professional indemnity is without the jargon and in a way that resonates with you as a freelancer. We believe any freelancer offering advice or providing a professional service should be insured.
With all of the claims we've dealt with, not one business ever expected to have to use their insurance. They just had that one bad client. That one unlucky project that didn't go to plan. Or they made that one mistake.
Fortunately, they had professional indemnity insurance. Get insured today.